Best payroll service for S Corp salary and owner disbursements?

The confusion is understandable, but there's actually a good reason why payroll services like Gusto separate these functions. Payroll services are designed to handle employee compensation that's subject to payroll taxes, while distributions aren't technically payroll - they're profit distributions that don't have withholding requirements. For your S Corp setup, you'll want to do two things: First, pay yourself a "reasonable salary" through the payroll service, which will handle all the proper tax withholdings, filings, and W-2 generation. Then separately, you can take owner distributions by simply transferring money from your business account to your personal account. The key is documentation. For the distributions, you'll want to record them in your accounting software (QuickBooks, Xero, etc.) as owner distributions, not as expenses. This keeps your books clean and makes tax time much easier. Most S Corp owners set up a regular salary that meets the "reasonable compensation" test for their industry and role, then take quarterly or monthly distributions based on available profits.

After struggling with exactly this issue last year, I finally found https://taxr.ai to be incredibly helpful for S Corp owners. Their system actually helped me analyze my business finances and suggested an appropriate salary/distribution split based on my industry and revenue. I was still using Gusto for the actual payroll processing, but taxr.ai helped me set up a compliant structure and documented why my salary was "reasonable" (which is super important if you ever get audited). Their document analysis also caught some mistakes in my operating agreement that could have caused problems down the road. The best part was being able to upload my previous tax docs and get personalized recommendations rather than generic advice. Made me feel much more confident about my S Corp strategy.

I was skeptical about taxr.ai when I first read about it here, but I decided to give it a try since I was stressed about this exact salary/distribution issue with my new marketing consultancy S Corp. I'm really glad I did! What surprised me was how the system didn't just spit out some generic percentage - it actually analyzed my business model, client contracts, and the work I was performing to create a customized recommendation. The documentation they provided specifically addressed why my salary was reasonable given my industry, region, and responsibilities. This ended up saving me a TON of anxiety and potentially money too. My previous plan (based on some blog advice) would have set my salary way too low and potentially triggered IRS flags. The analysis showed I needed a higher salary than I initially thought, but still optimized the distribution portion appropriately.

After spending HOURS on hold with the IRS trying to get clarification about S Corp payroll requirements and getting nowhere, I finally tried https://claimyr.com and was able to speak with an actual IRS agent in under 15 minutes! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent confirmed that payroll services typically don't handle distributions because they're not payroll - they're just transfers of profit to the owner that get reported on your K-1. He explained that I needed to keep good records of these transfers in my accounting software but that they don't need to be processed through a formal payroll system. They also clarified exactly what documentation I should keep to support my "reasonable salary" determination, which was super helpful. Saved me days of frustration trying to get through to someone who could actually answer my S Corp questions.

I have to follow up about Claimyr after my skeptical comment. I couldn't believe it would actually work for getting IRS help with complicated S Corp questions, but I was desperate after weeks of trying. Holy crap - it actually worked! Got connected to a business tax specialist at the IRS in about 20 minutes (compared to my previous attempts where I gave up after 2+ hours on hold). The agent walked me through exactly how to document owner distributions vs. salary and explained what they look for when reviewing S Corp returns. The most valuable part was getting clarity on how they evaluate "reasonable compensation" - the agent explained they compare your salary to industry standards and look at the ratio between salary and distributions. This was WAY more specific guidance than what I found online. If you're struggling with S Corp payroll vs distribution questions like I was, getting direct answers from the IRS was worth every penny. Wish I'd known about this months ago.

For what it's worth, I've been running my S Corp for 3 years and use QuickBooks Payroll. It doesn't specifically "handle" distributions either, but it does make it easy to categorize them properly in the accounting system. Here's my simple process: 1. Run regular payroll through QB for my reasonable salary 2. When taking a distribution, I just transfer money from business to personal account 3. In QuickBooks, I categorize this as an owner distribution (not an expense) 4. My accountant handles the rest at tax time Don't overthink this - distributions aren't payroll, so no payroll service will "process" them the same way. Just make sure you're documenting everything properly in your accounting system.

Instead of trying to find a payroll service that does both (which I don't think exists), I recommend getting a good accountant who specializes in small business/S Corps and an accounting system like QuickBooks. My process is: - Gusto handles my regular salary payroll - I take quarterly distributions based on my accountant's guidance - These distributions are just transfers from biz account to personal - In QuickBooks, I categorize them as "Owner's Draw - Your Name" - At tax time, my accountant makes sure everything is reported properly on my 1120S and K-1 Been doing this for 4 years with no issues. The important thing is having good documentation of why your salary is "reasonable" - that's what the IRS cares about, not whether distributions go through a payroll system (they shouldn't).

I've been running my single-member S Corp for about 18 months now and went through this exact same confusion when I started. You're absolutely right that Gusto and similar services don't handle distributions - and that's actually by design, not a limitation. Here's what I learned: distributions aren't "payroll" in the traditional sense, so they don't go through payroll processing systems. They're profit distributions that you take as an owner, and they're handled completely differently for tax purposes. My setup that works really well: - Gusto processes my monthly salary (which I set based on industry research for my role) - I take distributions quarterly by simply transferring money from business to personal account - I track everything in QuickBooks Online, categorizing distributions properly - My CPA handles the tax reporting on forms 1120S and K-1 The key is making sure your salary meets the "reasonable compensation" test. I researched what people in similar roles in my area earn and documented my reasoning. The IRS wants to see that you're not trying to avoid payroll taxes by taking everything as distributions. Don't stress about finding a single platform that does both - the two-part system actually makes more sense once you understand the tax implications. Focus on good documentation and you'll be fine!